I hope this finds you and your family well. COVID has ripped through all three of our children while they were home with us. Fortunately, it was the Omicron variant, and all had very mild symptoms. As careless as we were (per our children), my wife and I both dodged it regardless of our "risky" behavior. A part of me wishes I would have caught the mild version and I could be done with it. That said, I am done with it for now.
The market has turned with the broad Morningstar index down – 5.33% Year to Date. Only the previously lagging Value Sector is up 2.35%. In reviewing the index, I found it interesting that the top 10 companies constitute 24.38% of the entire 1,643 stock index. As those companies go, so goes the index. At the end of last year, the market was priced to perfection, most economists were predicting increasing profits, increasing employment, continued low-interest rates, supply chain issues improving, COVID being over, and about any other metric was looking positive. Then inflation became stubborn, and Ukraine happened. The current driver of inflation is too much money sloshing around and the increasing price of oil. M-2 (cash, checking, savings, and "near-cash" which is easily convertible to cash), has increased by 40% since COVID started. The Fed has used quantitative easing as a very sophisticated way of printing money. However, they printed too much money for too long a period. Thus, they have announced that they may increase rates by 50 basis points (1/2 of 1%) at their next meeting. This is an acknowledgment they are behind the curve on inflation, and they are doing the correct thing to fix it.
The response to increasing oil prices is another matter. When oil prices go up it affects everything! Think of what is not affected by oil prices. If a product is shipped, plowed, or made it likely has oil in it. We should be doing all we can to reduce the price of oil. I do not understand the administration's action with respect to this. We are placing sanctions on Russia, yet we still want to buy Russian oil and have them broker a deal with Iran. We have shut down the Keystone Pipeline, (a safer and cleaner way to move oil around than rail or trucks) and we are preventing refineries in Texas and North Dakota from producing about 3 million barrels a day, yet we are going to Venezuela, Iran, and Saudi Arabia asking them to produce more! All have said no. It makes no sense to me to ask hostile actors to produce more thus funding them when we can produce it in the US. We are releasing oil from our strategic oil reserves, which is good but not enough to make a difference.
Given inflation and Ukraine, it is hard to know where the markets will go next. The usual indicators point up but with so many unknowns on the horizon, the best advice is to stick to your financial plan! My thoughts are as follows, expect a lot of volatility and stay with your long-term strategy. If our views change, we will act accordingly. In the meantime, buckle up!!
If you have questions or comments let us know and if your circumstances change let us know. We are watching the currents closely. Thanks for your trust.
Willis Ashby, President
5105 DTC PKWY Ste 316
Greenwood Village, Colorado 80111 United States
5105 DTC PKWY Ste 316
Greenwood Village, Colorado 80111 United States